• by Paul Gough , June 11, 2003

Led by a jump in Internet spending and an inflationary economy, a new report by PricewaterhouseCoopers predicts the next four years will be marked by a growth in the domestic and global advertising market and ever-higher CPMs.

Entertainment and Media Outlook: 2003-07, which was released Wednesday by the accounting and consulting firm, forecasts that global advertising will increase to $375 billion in 2007. The growth will be led by Internet advertising, which will earn $9.3 billion in spending by 2007 and gains in broadcast and cable TV advertising that will be led in large part by increases in the Hispanic market.

An increase in defense spending will cause inflationary pressures, which will allow vendors to increase the amount of money they'll charge from everything from TV time to cable subscriptions, satellite radio service to magazine subscriptions. Broadcast CPMs increased 49.7% between 1998 and 2002, as cable's CPMs grew about 21.4%.

Advertising to Hispanic audiences, both Spanish and English speaking, will grow in what is the fastest-growing demographic in the United States. The Hispanic marketplace will grow to $1.5 billion by 2007, up 50%.

The report predicts broadcast and cable network revenues to increase 6.2% annually through 2007 to $58 billion from $43 billion in 2002. Upsides include political advertising and two shots of the Olympics, boosting broadcast advertising 4.9% a year and basic-cable advertising 6.7%. But even with some gains by cable, particularly in viewership, it will still remain lopsided in the battle for advertising revenues, the study said.

"Clearly broadcast will be dominant. As the economy still remains fairly weak, especially in the near term, advertisers are looking to put their dollars in the areas that work bets for them, and that would be the medium with the largest reach," Stefanie Kane, a partner in the entertainment and media practice at PricewaterhouseCoopers, said Wednesday afternoon. The phenomenon, at least on the TV side, might shift as cable networks attract more viewers and advertisers with original programming, but it's going to have an impact on other media as well.

PricewaterhouseCoopers predicts that electronic media - television, radio and the Internet - will continue to get the larger share of media budgets, at the expense of newspapers and magazines. The Internet advertising and access market will increase to $9.3 billion in 2007. After two years of declines as measured by the consultancy, online advertising will ride the wave of emerging areas like keyword search and rich media. By 2007, 75 million homes - 65% of U.S. households and a little less than three-quarters of the country's current television households - will have access to the Internet. Internet users will continue to remain somewhat upscale demographically, which will draw advertisers by the droves.

"Clearly, not a demographic and a size of the population that advertisers can afford to ignore," Kane said.

The efforts under way now to measure reach and frequency online - and in comparison to other media - will pay off in a big way by 2007. "That will make it much easier for advertisers to integrate advertising into their campaigns," said Kane. The technology being developed online and by companies such as Arbitron Outdoors will also help out-of-home advertising grow. Kane said that out-of-home media will be able to be measured by new technology, easing advertisers' concerns.

But technology like digital video recorders, interactive television, high-definition television and video-on-demand isn't expected to grow as explosively and might have trouble growing to the tipping point that media planners and buyers anticipate and in some cases fear.

"The PVR market hasn't gained traction," said Kane. The report notes that consumers have opted for DVDs over DVRs by a ratio of 30-to-1 and that the major DVR providers haven't yet been able to prove their business models are going to work.